Coronavirus: UK expands Future Fund to include startups based abroad

  • The U.K. government has relaxed eligibility criteria for the initiative so that firms participating in accelerator programs can apply.
  • Under the scheme, start-ups have to get their venture capital investors to apply for bridge financing from the government.
  • Start-ups have so far received £320 million through the Future Fund, and the government says it's willing to increase the fund's size if necessary.

Britain's Chancellor of the Exchequer Rishi Sunak takes part in a national "clap for carers" to show thanks for the work of Britain's National Health Service (NHS) workers and frontline medical staff around the country as they battle with the coronavirus pandemic, on the steps of the Foreign and Commonwealth Office (FCO) on April 16, 2020 in London.Tolga Akmen | WPA Pool | Getty Images

The U.K. government has expanded its rescue package for start-ups impacted by the coronavirus pandemic to include businesses whose parent companies are based abroad.

The so-called Future Fund was created by the U.K. Treasury in April to provide a lifeline to unprofitable tech firms unable to gain access to other relief financing schemes. Though the government had set aside billions of pounds in emergency loans for firms hit by the crisis, start-ups said this did not apply to them as they had to prove a history of consistent profits. Many venture capital-backed start-ups operate at a loss in order to accelerate growth.

But tech industry leaders have been calling for Prime Minister Boris Johnson's administration to relax eligibility criteria for the Future Fund so that firms participating in accelerator programs like Y Combinator can apply. Such initiatives require start-ups to have parent companies located outside of the U.K. in order to enroll.

Under the Future Fund scheme, start-ups have to get their venture capital investors to apply for bridge financing from the government. The funds are administered by the state-owned British Business Bank in the form of convertible notes that become equity stakes in a start-up's next funding round — the theory being that this enables the government to make a return on the investment later down the line.

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The £500 million ($614 million) fund consists of a £250 million commitment from the Treasury, which is matched by private sector funding. Start-ups have so far received £320 million of support through the initiative, and the government says it's willing to increase the fund's size if necessary.

"Our start-ups and innovative firms are one of our great economic strengths," British Finance Minister Rishi Sunak said in a statement Tuesday. "As we begin to bounce back from coronavirus they will help drive our recovery and create new jobs. This change means that those start-ups who have strived to be the very best, and taken opportunities to grow their business, will be able to benefit from our world-leading Future Fund."

Germany and France have taken similar measures to provide their start-ups with continued access to capital as the Covid-19 crisis makes it harder for younger tech firms to raise money. Meanwhile, the European Union is reportedly looking to relax its state aid rules to help tech start-ups based in member countries access government support.

Source: cnbc.com

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